The Secret Financial Life of… Your Partner

Whoever first linked the verb “fall” with the sentiment “love” hit the nail on the head.

The rush you get when you believe you’ve found Mr. or Ms. Right feels exactly as if you’re tumbling through the air. Endorphins gushing, you jump headlong into a relationship, confident that your love for each other will conquer any “issues” that might crop up. You and your beloved are one and you share everything.

Right.

According to a Harris Interactive survey for Lawyers.com, 40% of American adults say that being honest with their partner about financial issues is more important than sexual fidelity. Yet nearly 30% of us (presumably, not the same individuals) admit withholding information about how much we spend on things such as clothing, accessories, entertainment, electronics and other discretionary items. Other surveys have found that individuals who are part of a couple often admit to having a "secret stash" of money.

Los Angeles attorney Gloria Allred, who has devoted much of her career defending family and women’s rights, bluntly states, ”Those in relationships need to know how to protect themselves from financial deception.” And she's talking about deception by your significant other, not the Internet thief who wants your credit card number.

It's important to get your finances in order and protected before the inevitable cracks appear in your relationship. Signs of trouble include: What you once considered an endearing idiosyncrasy becomes an annoying habit or, you’re embarrassed by the inappropriate bursts of crude language. Perhaps you feel repressed by your beloved’s need to control or uneasy about the overly friendly way s/he hugs your friends.

Or perhaps your partner neglected to mention that s/he: a) bets heavily on slots/college football games; b) trashed her/his credit rating by “forgetting” to pay a few bills for several months; c) racked up $42,000 in student loans; d) co-owns the condo with her/his daughter (prior marriage) who never seems to have enough money to cover the mortgage; etc.

When the endorphins recede and reality enters, a relationship can look very different than you initially thought. And, of course, the longer you are a couple, the more entwined your lives-- particularly your financial lives--become, making a breaking up that much harder.

If you and your partner are married, the law cuts both ways and there are some legal protections that stipulate how much of the marital property each party is entitled to in the event of divorce. In some cases, there might also be additional liabilities depending upon how things such as cars or real estate are titled.

The number of unmarried couples living together have been climbing for decades. According to the U.S. Census Bureau, in 2007 there were 6.4 million households headed by unmarried, opposite-sex couples--more than twice as many as 30 years before. A survey by Brides Magazine found that 65% of men and women who are planning to get married live together before walking down the aisle.

While grandma or grandpa might have disapproved of such arrangements years ago, these days, shacking up is no longer the province of the young. The Web site www.retirelikeme.com reports that “the number of unmarried seniors sharing living space is growing rapidly” for a variety of reasons, including financial.

The finances of unmarried couples living together are particularly vulnerable. Allred advises co-habiting couples establish ground rules to protect their finances. At a minimum, she recommends keeping separate bank accounts. While that seems like a no brainer to some, it’s a practice only a minority observe.

Allred also advocates that unwed women not quit their jobs based on something she calls “The Midnight Shower Agreement.” She describes this as when, surrounded by candles and sensual music he whispers, “Don’t worry, honey, I’ll always take care of you.” Then one day he comes home with another woman and you’re out the door. “Always maintain the ability to support yourself,” she advises.

Co-mingling bank and investment accounts isn’t the only way an individual can be hurt financially. If one partner puts in the time, money and effort into redecorating and furnishing the other's home and the enhancements make the property more valuable, that person would not likely see any benefit of the increased property value in the event of a break up.

The same would happen if one partner makes major repairs to the structure of the house by fixing things like a sagging garage roof or replacing an old furnace.

Allred maintains that it’s possible for both partners to protect themselves financially without killing the romance. In fact, it could enhance the relationship by making each partner more secure because you know where you’ll stand in the event you part ways.

For starters, trade copies of your credit reports. (I didn’t say this would be easy.) If you’re planning to marry, consider a pre-nuptial agreement.

You might be surprised to learn that only eight states follow “community property” law which splits marital property 50-50 in the event of divorce. According to Allred, “In some states, the law is not favorable to women. You may want a written agreement [in order to] get more than you would under the law of your state.” If you didn't create a pre-nup before saying I do, you can get a post-nuptial agreement drawn up.

If you’re living together without tying the knot, see a family law attorney about drawing up a co-habitation agreement. “It’s a written contract between two people that provides for each person’s rights and obligations in the event of break-up or death,” says Allred.

Regardless what type of agreement your situation calls for, Allred cautions against writing one yourselves. “The more you have at stake, the more you should consider getting an attorney to represent you.”

Ms. Buckner is a Retirement and Financial Planning Specialist at Franklin Templeton Investments. The views expressed in this article are only those of Ms. Buckner or the individual commentator identified therein, and are not necessarily the views of Franklin Templeton Investments, which has not reviewed, and is not responsible for, the content.

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